The Cash Flows of a start-up small business are inherently problematic. A small business owner especially if it is a startup owner, could easily forget the importance of cash flow management. This is because they concentrate on sales agreements and legal and other administrative issues.
Therefore, a little guidance can prove vital for a healthy outlook of the business. It is recommendable that the small business owner seeks advice. However, learning from other’s experiences to effectively manage cash flows can also be beneficial.
The first piece of advice is to be able to use the money to earn money. Sounds easy, but this is where many businesses fail to gain profits. Opening an interest-bearing account and a money market account is the first step on the ladder.
E.g. in our previous experience, we found that in Dubai, a company is required to maintain liquid assets that exceed the expected expense of next year. This usually amounts to a huge cash balance. Therefore, it is recommendable to keep this cash in a money market account allowing the business to earn profits from it.
Moreover, keeping the required cash in an interest-bearing account will allow the company to run smoothly, still earning some profits while also keeping it easily accessible.
Unused pieces of equipment are a part and parcel of every business. The first advice regarding this is to not purchase until necessary. Because for a small business, using cash on useless items can lead to many unprecedented issues. It can fill your valuable office space or sometimes just keeps losing its value.
Secondly, it is better to remove such items even below cost, than to just keep it as a waste. This will help the owner improve his spending habits.
For a small business where the owner is already looking to save every single dollar, it is hard to imagine that expenses can still be reduced. See the larger picture. For instance, installing solar energy panels may be costly but they will considerably reduce electricity costs and in a few years, therefore, recover all the cash used to purchase them. Another way of controlling operating expenses is cash flow budgeting which is followed by many small and large businesses.
Outsourcing is a good policy for small businesses especially startups and this helps minimize fixed costs of the business. Cash management techniques recommend businesses to look for outsourcing opportunities instead of hiring personnel or purchasing the equipment for DIY projects.
Receipts from customers vary from business to business if the business is based on payments received from customers after the delivery of a product or service then cash flow management becomes difficult and crucial for the continuity of the business.
Small businesses face another issue on top of this. For a small business or startup business, it becomes even harder to have long credit limits from suppliers. Therefore, the business may have to pay before it receives from the customer. In this case, dealing with non-payments or late payments further worsens the cash-flow deficit creating more issues. Hence, this needs to be eliminated.
Some startup small business owners might think that if they are not getting paid on time from the customer, then, they can also delay payments to the supplier. This is not beneficial in the long run.
It is recommendable to always make payments to vendors on time. This will help build a reputation and may attract early payment discounts in the future.
We do offer Cash Flow management services and Cash Flow forecast Models.